How to invest in water as droughts and shortages dominate the news

By Myra P. Saefong

Not all water investments are winners: analyst

Water has become a popular topic these days, given the widespread drought conditions around the world and the water crisis in Jackson, Mississippi. This does not automatically translate to a win-win when it comes to investing in the sector.

“As water megatrends continue to dominate the headlines, the investment implications are more complicated,” says Deane Dray, managing director and cross-industry analyst at RBC Capital Markets.

“One of the biggest myths is that all water investments must win,” given all the supply and demand imbalances, droughts and drinking water fiascos like Jackson’s, he said. “Too many people think that just being in a water-related business automatically makes it a good investment. That’s just not the case.”

Most water exchange-traded funds were trading lower this year as of September 6, with First Trust Water (FIW) down 18%, Invesco Global Water (PIO) down 28% and Invesco Water Resources (PHO) down 19%. Shares of water technology provider Xylem Inc. (XYL) were down 23% and utility company American Water Works Co. (AWK) was down 21%.

On the Chicago Mercantile Exchange (CME), however, water futures based on the Nasdaq Veles California Water Index were trading at $1,165 per acre-foot, up about 21% from the l ‘last year.

Investors have different options for investing in the water industry, “from desalination technology to companies supplying water at the municipal level and those transporting water,” says Andrew Chanin, CEO of ProcureAM and issuer of the Procure Disaster Recovery Strategy (FEMA). There is no simple solution, so “diversification may be an approach investors consider to address the growing water crisis,” he says.

Among investment choices, the future of water can help determine whether there are concerns about scarcity, Chanin adds. Investing in water ETFs, meanwhile, shows an understanding that there is a “looming crisis and that we are even more dependent on these companies to develop solutions.” And companies providing water technology, infrastructure and transport, as well as methods of creating clean water, such as desalination, could be “very important during cycles of drought and water scarcity. “.

In stark sign of the extent of water shortages, the United States Bureau of Reclamation reported that the water level of Lake Mead, on the Arizona-Nevada border, the nation’s largest reservoir, was only 28% full as of September 6.

“We expect the consequences of water shortages to become increasingly apparent…resulting in a corresponding increase in demand for companies that support more thoughtful approaches to water use,” says Alec Lucas, Research Analyst at Global X ETFs.

Lucas oversees his company’s suite of water and cleantech funds, such as Global X Clean Water (AQWA), which includes “pure players” – companies that generate at least 50% of their revenue from water. business operations related to the clean water industry. , he says. These companies include Xylem and American Water Works, as well as water metering and distribution products manufacturer Mueller Water Products Inc. (MWA) and water treatment and purification technology developer Ecolab Inc. ( ECL).

Dray of RBC Capital Market says there are few publicly traded “pure play” water companies, and while there are more than 50,000 water utilities in the United States, fewer than 10 are listed on the stock exchange. This limits investors’ choices in the water sector.

Still, Dray thinks Xylem, Evoque Water Technologies Corp. (AQUA) and Danaher Corp. (DHR) are “much better positioned to be winners” in high-tech water sub-sectors such as smart water systems, automation, water testing and desalination. .

-Myra P. Saefong

 

(END) Dow Jones Newswire

09-10-22 1500ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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